There is an important distinction between contracts made on the standard terms of a supplier and contracts which have been negotiated.
The case involved a claim for damages for lost profits for breach of contract. The defendant argued that the right to bring such a claim was expressly excluded under a term of the contract. The claimant argued that the exclusion was ineffective.
Clauses which seek to exclude or limit liability in contracts made between businesses are regulated by the Unfair Contract Terms Act 1977 otherwise known as “UCTA”. If the term in question was included in a contract made on the supplier’s standard terms of sale, then under UCTA its enforceability would be subject to a test of reasonableness. If included in a negotiated contract made therefore not on standard terms, it would not be subject to the reasonableness test.
UCTA applies differently to different types of clause, but where the reasonableness test applies to a term in a contract which seeks to limit liability, a court will consider whether the limitation is reasonable in all of the circumstances. If it considers that the term is reasonable, the term will be effective and enforceable. If it considers that the term is not reasonable, then the term will be unenforceable and will not protect the party relying on it.
Often, as was the position here, a contract may be substantially on the supplier’s standard terms of sale, but with perhaps only a very small number of terms amended at the customer’s request. The question arises as to whether this is a contract on standard terms for the purposes of UCTA. The High Court judge noted that there had been negotiations between the parties. The test was whether the standard terms were “effectively untouched” which on the facts they were not. Changes had been agreed and made to the standard terms which were not insubstantial and it was not relevant that the exclusion clause in question itself had not been altered. Consequently, the court was not required to consider if the clause was reasonable. The clause was upheld in its terms which the judge found in the context of the contract clearly and effectively excluded liability for lost profits.
The case is worth noting as an example of how, depending on the facts, it may ultimately be damaging to a customer to negotiate only limited or minor amendments to a supplier’s terms and, by the same token, advantageous to a supplier to agree to such changes.
It is also a reminder of why it can be useful to take advice on the effectiveness of terms included in standard terms and on the negotiation of contractual terms.
If you require advice on any contractual matter please contact us on 08081668827.
Case: Pinewood Technologies Asia Pacific Ltd v Pinewood Technologies PLC [2023]
Disclaimer: This article is a summary of the relevant law and provided for the purpose of giving general information only. It is not intended to provide, and should not be relied upon as providing, legal advice. There are a number of factors and circumstances which may be relevant to legal advice. The law may also have changed before we are able to update the website. If legal advice is required in relation to any of the matters referred to in this article, please contact us on 08081668827.
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